Customer Lifetime Value (CLV)

Customer lifetime value or CLV (CLTV/LTV/LCV) is a metric that represents the total amount of money a business can expect to attribute during the whole period of their relationship with a customer.

How Do I Calculate It? 

For instance, if your customer buys services from you worth 20$, 5 times a year and stays with you for 5 years, then your CLV will be 20x5x5 = 500$. Subtract all the costs you’ve invested to acquire this customer and you can see how much profit you actually make.

Why Is Customer Lifetime Value Important?

1) CLV shows whether your business is profitable or not. The ratio of customer lifetime value (CLV) to Customer Acquisition Cost (CAC) represents the health of your business model. The CLV shows how much you can invest in finding, nurturing, and maintaining a customer while making a profit. CLV has to be higher than CAC.

2) This metric shows which customers bring the most profit and which products are the most popular among those clients. Exponea points out that CLV gives you an opportunity to segment your customers by value and provide them with a personalized approach they expect in 2020.

3) The insights that come to you while you research your CLV may significantly change your marketing mix. Customer Lifetime Value can highlight the gaps that other metrics simply don’t measure. 

How Do I Increase My CLV?

1) Segment & Personalize
Based on the data you gather to calculate your CLV, you can segment your clients by service/product type or history of your cooperation. Personalization for existing customers makes them feel special and increases the probability of re-purchase.

2) Keep In Touch
While gaining new customers is invaluable for growing your revenue, don’t forget about nurturing current and old ones. Make sure they know that you are willing to work together in the future.

A thank-you email is a nice human touch that supports an existing relationship with a customer. Express your gratitude for cooperation, send an update, or congratulate them on their achievements. Either way, it helps. 

Social media is a bonus funnel for your nurturing outreach. Most likely, your customers are subscribed to one of your pages. Don’t waste this opportunity. Encourage them to re-purchase or just be active on their newsfeed.

3) Reward Loyalty
Regular customers are very important. They spread the word about your company, bring you stable profit, and strengthen your position in the market.

To reward that loyalty, you can implement a discount or bonus program. For instance, CIENCE has a bonus program that offers up to $1000 in discounts for every referred company that signs with us. 

Summary

Customer Lifetime Value or CLV is the amount of money that your company can expect to gain from the whole period of working with a customer. 

Along with Customer Acquisition Cost (CAC), CLV represents the health of your business model. This proportion is important because it represents how much you get from each customer vs. the investments you make into maintaining one. In order to make a profit, Customer Lifetime Value should be higher than Customer Acquisition Cost.

You can increase your CLV by keeping in touch with your old customers, encouraging them to re-engage, as well as developing a reward system for existing loyal customers.